QUESTION: Commissions and costs: how to reduce costs during rebalancing?
Answer
Portfolio rebalancing is necessary to maintain the target risk level, but it inevitably entails additional transaction costs and brokerage commissions. When it comes to optimizing commissions and costs in asset management, it is important to avoid extremes and follow a balanced approach.
To avoid losing extra money on constant buying and selling of securities, follow basic risk management rules.
•Do not inflate expectations for portfolio returns and do not rebalance too often, for example, every week or month.
•Leave enough room for life and do not invest your last money, so you don't have to sell assets at a loss due to an urgent need for cash.
•Record your investment progress using small checkpoints once a quarter or half-year.
Often, the best way to reduce rebalancing costs is to buy new assets with incoming free cash instead of selling existing positions. Directing regular top-ups to asset classes lagging in share allows you to smooth out the portfolio structure without paying selling commissions and potential capital gains taxes.
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